The U.S. trade deficit widened in June and is on track to be the biggest in a decade despite President Trump’s efforts to slash it.
Trump has repeatedly promised to reduce the trade deficit during his White House tenure, but so far, it has grown under his watch.
He claims the United States' “massive” trade deficit is a sign the country is getting beaten by China, Germany and others, and he blames the deficit on “very stupid” trade deals. Most economists do not view the trade deficit as a problem. They point out that a big driving factor behind the higher trade deficit this year is that U.S. consumers are buying more stuff. That’s happening largely because the U.S. economy is doing well and people feel bullish enough to shop more for goods. Trump’s tax cuts have also helped fuel the buying spree for foreign products.
“While the administration is intent on reducing the trade deficit — which it wrongly perceives to be the result of unfair trade practices — the implementation of a late-cycle fiscal stimulus package will put further upward pressure on the trade deficit in the coming months,” said Gregory Daco, head of U.S. economics at Oxford Economics, a research firm.
But Trump doesn’t see it that way. He views trade as a zero-sum game in which one country is winning and the other is losing. He claims trade wars are “easy to win,” and he has launched battles with numerous countries in an effort to pressure their leaders to come to the negotiating table. Trump has put tariffs on just under 4 percent of imports so far, according to The Washington Post tariff tracker (see below).
Trump has threatened to substantially escalate the trade war by putting tariffs up to 25 percent on another $216 billion worth of Chinese products, as well as all imported cars, trucks and auto parts, which would be about another $360 billion worth of imports. If the tariffs on China are implemented in the coming weeks, it will mean that more than 12 percent of imports have Trump tariffs on them, a much larger amount that’s likely to make some prices at the store rise.
Trump stood outside the White House a week ago and declared victory that he had reduced the trade deficit in the spring, but the figure he was using to make that claim was that there was a slight reduction in the trade deficit from the first quarter of this year to the second quarter. He left out the fact that the first-quarter deficit was the highest since before the financial crisis.
U.S. exports had an unusual surge this spring as other countries rushed to buy U.S. goods before tariffs went into effect. The vast majority of economists expect that rush to buy before the trade war escalated will be followed by lower-than-usual exports in the second half of the year. The widening trade deficit in June is a sign it’s starting to play out that way.
Economists think Trump is wrong to be so fixated on reducing the trade deficit. The only way to really cut it is for Americans to stop buying so much, they argue, and they point out that the United States doesn’t “lose” on trade. Americans get cheaper items from abroad, and the dollars that go to China and elsewhere mostly end up returning to the United States through foreign investment and purchases of U.S. Treasury bonds. Under Trump, the United States is returning to $1 trillion annual budget deficits and looking to foreign investors to help fund it.
“Economically, the trade deficit is not that big of a deal,” said Jim O’Sullivan, the chief economist at High Frequency Economics. “It’s being driven by how strong the U.S. economy is right now. ”
Despite the widening trade deficit, it still accounts for under 3 percent of the total U.S. economy, O’Sullivan notes, which is down from 5 percent before the financial crisis. Trump’s push to put tariffs on imports from China and other countries is unlikely to reduce the deficit because Americans are still likely to want to buy all of these items, so companies are likely to either pay more for the imports or else buy the items from different countries that aren’t subjected to the added tax.
Christopher Ingraham contributed to this report.